These are times of great challenge and opportunity for the energy industry. But the heads of the big operators have differing views on the way forward. JAMES HALL reports.

Australia is a global energy freak. It has among the lowest levels of energy efficiency, the highest levels of carbon emission and the lowest electricity prices. It also has the largest known reserves of uranium, exports more coal than any other country and has abundant oil and gas fields, enjoys plentiful sunlight and sits above the world's most predictable wind zone, the roaring forties.

This year, its biggest company and oil producer, BHP Billiton, paid $A9.2 billion ($NZ10b) for the owner of the world's largest uranium deposit, WMC Resources.

As oil heads for $US65 a barrel and the east coast air- conditioning fetish threatens to destabilise the national grid, it is not surprising that energy bosses cannot agree on where to put their money.

"All of us are producing cash as reliably as we can from this sector," says AGL chief executive Greg Martin. "But people are doing that in different ways." Martin's problem, and that of his peers, is a surfeit of choice.

Although Australia has resources to bet on in an energy- hungry world, it may be punished for its contribution to the carbon emission problem.

Just last week, the International Energy Association pinged Australia for having no national energy strategy to tackle this.

However, this uncertainty is an opportunity for the swift and smart to whom one thing is clear: climate change and energy constraints will present great money-making opportunities.

For Babcock & Brown infrastructure director Peter Hofbauer the energy opportunity is wind, in which his firm has some $A5b invested around the world.

Hofbauer says that although energy sustainability is now "fully on the agenda", with "different agendas driving different messages", it can be confusing.

However, B&B believes wind power presents opportunities to exploit this confusion -- and hopefully make lots of money.

"We're a financial institution," Hofbauer says.

"We come at this from an investor's point of view ... We tend to approach it in a less theoretical manner than sitting with a bunch of boffins and saying, `Where are the levers we need to pull?' What we have is people in particular markets who have a very good understanding of the levers relevant to them."

For AGL, Australia's largest energy retailer, the future is gas.

Martin says there is more to gas than it being relatively cheap and clean, its abundance or suitability for peaking plants.

He says it is the only viable "transition fuel" to see Australia through the 20 years or so it will take for a long-term energy solution to become affordable and practical.

"There is no magic bullet, but natural gas gives us the time to transition to more efficient technology further down the track," he says.

"We recognise we are in a carbon-constrained environment, so internally we are factoring in a carbon cost -- but as we look to the immediate future, gas is the only logical place to go."

Natural gas has about 20 per cent of the Australian generation market, compared with 42% from coal, 34% from oil and 4% from renewables -- but the IEA reckons gas will enjoy 97% growth in domestic use to 2020.

AGL's recent $A7.5b commitment to ExxonMobil's PNG Gas Project is aimed at profiting from this growth.

AGL will buy $A4b of gas from the project, build the $A2.5b Australian leg of the transport pipeline and take a 10% equity stake in the project.

In recent years, AGL has also purchased the Loy Yang base-load gas generation plant in Victoria, built two gas-fired peaking plants and is trying to buy another in the Latrobe Valley.

Peaking plants are the most important part of the chain, Martin says.

"It is the highest area of demand and it is what most influences pricing outcomes.

"The last megawatt hour that is dispatched determines the price for everybody."

Martin would also like to hear a national debate on energy extend to Australia's role as an exporter.

"We talk about reducing emissions in Australia yet we export coal and uranium," he says.

"Some of the debate needs to go into being a good global citizen ... China installs the equivalent of `one Australia' in energy production each year. They are using our coal and building nuclear plants. It is in that global context that we need to be addressing this issue."

It is for similar reasons that B&B is so keen on wind.

While the company has interests in more traditional energy- related businesses such as coal transportation and gas distribution, wind creates lucrative anomalies in a market dominated by commodities.

Commoditisation of non-carbon markets may be inevitable, but Hofbauer believes those who get in early will benefit most.

That is why Babcock & Brown is land-banking wind farms.

"The reality is it's a lot easier to get permission to extend a site than plonk in a new one," Hofbauer says.

"In 20 years time, the utility- scale premier wind sites will continue to be repowered and reinvigorated ... The wind might not be blowing at one point but it will be somewhere in the world. If you have enough diversity of investments ... they present good money- making opportunities." Babcock & Brown's commitment to wind power, which will result in it listing a wind-energy trust on the Australian Stock Exchange soon, is echoed by Industry Funds Services.

The superannuation adviser was pilloried by some analysts this year for agreeing to pay about $A550 million -- or 25 times earnings -- for the two-thirds of wind and hydro power producer Pacific Hydro it did not own.

IFS chairman Garry Weaven does not care. He believes countries that underinvest or underorganise in respect to renewables will see their complacency come back to haunt them, as a result of rapid climate change and a punitive revaluation of carbon.

"We are beginning to see risks emerge from lack of recent investment in new energy generation and we suspect that this will need to be addressed in the near future," he says.

It is "absolutely foolish" to ignore renewables just because they may not generate much of a return in the short-term.

"There is a strong chance that at some point in the next 10 years, the slowly growing community and corporate awareness of the potential implications of global warming may convert quite suddenly to a much heightened awareness -- even potentially producing over- reaction and panic," he says. "Such circumstances will of course greatly favour those companies, investors and nations who have made early investments in renewable energy."

Explorer and retailer Origin Energy's attitude to solar energy is similar.

Its managing director, former AGL executive Grant King, is pushing solar, although it represents a minuscule portion of sales forecast to top $A4.5billion this year.

A $A20 million demonstration plant in Adelaide for its Sliver photovoltaic technology aims to change that.

"In our view, solar is the long- term solution," says the company.

"But even if we had a solar panel on every second house in Australia over the next 15 years, by 2020 it would only make a small contribution." Although only half of Australia's carbon emissions come from power generation, it is expected to account for 90% of emissions growth.

Origin says that means that just to maintain the status quo, carbon emissions from power generation have to be cut by between 100 million tonnes and 200m tonnes a year for the next 15 years.

In the same period, Origin reckons Australia needs 10 more base- load power plants. Every new base-load coal plant adds 9m tonnes of carbon a year; every gas plant adds 3m tonnes a year.

None of the individual solutions -- whether it be improvements in energy efficiency, building standards, renewable generation or cleaning up fossil fuels -- will solve this problem, says the company.

That is why Origin -- as well as AGL, B&B and many other players in the energy industry -- believe currently unused sources of power generation will have to be encouraged.

Uranium could be the answer -- if state Labor governments can be persuaded to abandon their policy of no new mines.

Even if Australian companies make a fortune from uranium, it is likely to be in the export market, as supporting domestic nuclear- power generation is too politically risky.

And the Federal government's decision to seize control of the Northern Territory's uranium resources is perceived by most as a grab for export dollars.

Meanwhile, spot prices for uranium oxide have quadrupled to almost $US30 a pound since 2001, dragging yellowcake explorers' stock prices up too.

Over the past two years, Paladin Resources has outperformed every other stock on the Australian Stock Exchange on its plans to build a mine in Namibia.

Politicians may have to change their attitude to uranium.

Even Keith Turner (chief executive of New Zealand Government- backed Meridian Energy, which is trying to sell Southern Hydro -- Australia's largest renewables business -- for up to $A1.5 billion) says wind, hydro and solar cannot solve Australia's energy problems.

"Whether it is solar-powered hot-water boilers on house roofs or whether it is coal-seam methane or biogas recovery from tips, Australia's prime energy source is not going to come from hydro or wind," he says.

"You have vast tracts of under- utilised land with high solar intensity but ... at the moment, it is 10 times out of the market." Chernobyl was a major milestone in his industry career, Turner says.

"To see the plume of pollution that affected so many nations without being able to do a thing about it was a big wake-up call. But the question now is: what is more important -- the risk around nuclear or the risk around global warming?" -- Australian Financial Review

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Fairfax. Renewables key: Industry Funds Services chairman Gary Weaven believes countries that underinvest or underorganise in respect to renewables will see their complacency come back to haunt them.